`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                   FORM 10-KSB

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2000.

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from______________to_______________

                         Commission file Number 0-7693

                      INTERNATIONAL MERCANTILE CORPORATION
                 (Name of small business issuer in its charter)

                 Missouri                            43-0970243
        (State or other jurisdiction of           (I.R.S. Employer
        incorporation or organization)         Identification Number)

       1625 Knecht Avenue, Baltimore, Maryland           21227
      (Address of principal executive offices)        (Zip Code)

         Issuer's telephone number, including area code (410) 242-5000

        Securities registered pursuant to Section 12(b) of the Exchange
                                      Act:

          Title of each class                    Name of exchange
                                                on which registered
                None                                   None

        Securities registered pursuant to Section 12(g) of the Exchange
                                      Act:

                      Class A Common Stock, $0.10 par value
                                (Title of Class)



        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X   No

        Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-K [ ]

        State issuer's revenues for its most recent fiscal year......$7,064,025.

        State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act).

        As of April __, 2001, the aggregate market value of Class A Common
Stock, $0.10 par value, held by non-affiliates was approximately $______________
(_____________ shares at $___________, which is an average of the bid and asked
price).

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

        State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date................

        As of December 31, 2000, there were 9,333,536 outstanding shares of
Class A Common Stock, $0.10 par value, and 2,000,000 shares of Class B  Common
Stock, $0.01 par value.

            Transitimal Small Business Disclosure Format (check one)

                                    Yes        No   X




                                Table of Contents
                                      10KSB

PART I.......................................................................  2
Item 1.......................................................................  2
Item 2....................................................................... 11
Item 3....................................................................... 11
Item 4....................................................................... 11
PART II...................................................................... 11
Item 5....................................................................... 11
Table 1......................................................................
Item 6....................................................................... 12
Item 7....................................................................... 12
Item 8....................................................................... 12
PART III..................................................................... 12
Item 9....................................................................... 12
Table2.......................................................................
Item 10...................................................................... 14
Item 11...................................................................... 15
Table 3...................................................................... 15
Table 4...................................................................... 16
Item 12...................................................................... 18
Item 3, as described above was successfully implemented...................... 19
Item 13...................................................................... 20
Table 5...................................................................... 20
Item 1, 2.................................................................... 21
Balance Sheet................................................................ 23
Income Statement............................................................. 25
Table 8...................................................................... 26
Cash Flow Statement.......................................................... 27
Table 10..................................................................... 33
Table 11..................................................................... 33
Table 12..................................................................... 34
Table 13..................................................................... 36


                                     EX-10.1

Table 14..................................................................... 66

                                     EX-10.4

EX-10.4...................................................................... 78

                                      EX-27

Exhibit 27 Table............................................................. 80





                                     PART I

Item 1.        Description of Business

               CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
                THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
            DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS

         In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially for those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earning or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.

         This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, the Company's ability to secure debt and/or equity financing on
reasonable terms, and other factors which are described herein and/or in
documents incorporated by reference herein.

         The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.

     We were organized as International Mercantile Corporation under the laws of
Missouri on March 10, 1971 to operate in the insurance industry.  Since
September 2, 1999, we have engaged in the business of manufacturing
competitively  priced custom- configured, build-to-orde r, unbranded or
"white-box" desktop systems and servers for value added resellers ("VARs"). We
presently do business under the fictitious name of Micromatix.net
("Micromatix").  Unless the context otherwise requires, all references to the
"Company" "we" "our" and other similar terms means Micromatix, but not Home
America Mortgage Company, our other subsidiary company which is presently
inactive.

    (a) Business Development

    We were organized as International Mercantile Corporation under the laws of
Missouri on March 10, 1971 for the purpose of acquiring Frontier Insurance
Company ("Frontier") and Universal Life Holding Corporation ("Universal"). We
effected these acquisitions on August 31, 1973 and subsequently acquired a
controlling interest in Sterling Financial Corporation ("Sterling").

    Our Sale of Sterling - Fall 1993

    In the Fall of 1993, in order to minimize our operational expenses, we sold
our interest in Sterling to Mike Polland and Associates in exchange for stock,
debt assumption and cash.

    Our Sale of Universal -  May 4, 1995

    Universal Life Holding Corporation ("Universal") was incorporated under the
laws of Illinois on August 13, 1964. Historically, the principal business of
Universal has been in real estate development, ownership, and management and the
investment in Frontier Insurance Company.

    On May 4, 1995, we exchanged all of our common stock in Universal with
Universal for forgiveness of notes and other payables owed by us to Universal.
We incurred a gain on the sale in the amount of $751,089.

    Our Sale of Frontier's wholly owned subsidiary, IFS - April 1994

    On January 1, 1994, Frontier owned 100% of International Financial Services
Life Insurance Company ("IFS"). On April 15, 1994, Frontier entered into a Stock
Purchase Agreement (the "IFS Agreement") with Franklin American Corporation, a
Tennessee corporation ("Franklin"), whereby Frontier sold Franklin all of
Frontier's  issued and outstanding common stock of IFS (the "IFS Shares"). The
nature and amount of the consideration to be paid to Frontier by Franklin for
the purchase of the IFS Shares were as follows: The aggregate purchase price of
the IFS Shares equaled the sum of (a) the current market value of IFS' total
assets as of the fifth business day prior to the closing date less IFS' total
liabilities calculated on a statutory basis as of the closing date, plus (b)
$1,155,000, based on Frontier's providing valid licenses authorizing IFS to
conduct business in 42 states less $27,500 per state in which a valid license
authorizing IFS to transact the business of insurance was not delivered by
Frontier at closing. The consideration paid by Franklin for the IFS Shares was
determined through arm's-length negotiations, and neither Franklin, nor any of
its officers or directors, was in any way affiliated with, or related to,
Frontier. The Company recognized loss on this sale in the amount of $775,508.

    Our Sale of Frontier - November 1995

    By December 31, 1994 Frontier was no longer issuing new business due to
regulatory actions and a voluntary commitment on Frontier's part to the State of
Missouri. Additionally, in the fourth quarter of 1994, Frontier entered into an
Assumption/Reinsurance Agreement with Mid-South Insurance Frontier pursuant to
which Frontier transferred all policyholder liabilities, effective October 1,
1994. On November 17, 1995, we sold Frontier by (i) transferring all of our
stock in Frontier for full satisfaction of a note owed to two of our former
officers, Robert and William Bruce, (ii) canceling consulting agreements (iii)
canceling all inter-company receivables and payables (iv) transferring our
accrued rights to commissions due from the former third party administrator, (v)
transferring all obligations of Ventana Corporation (f/k/a The C. J. Brown
Corporation) which we held, and (vi) assigning all our rights regarding
litigation against the Ventana Corporation and its officers to Frontier. As a
result of this sale, the Company incurred a loss of $1,652,689.

    Our Purchase, Sale and Reacquisition of Home America Mortgage Company

    Purchase - October 1992

    Home America Mortgage Company ("Home America ") was incorporated in 1986
under the name Realty Mortgage Company and in October 1992, Frontier purchased
Home America  from the C. J Brown Corporation. Home America operated as a
provider of first mortgage residential home loans. Home America  originated,
processed, underwrote, closed, funded and delivered qualifying home loans to
established mortgage companies throughout the country. Its target markets were
in Louisiana, Alabama and Texas. Home America originated over 1,056 loans in
1994 and 1,190 loans in 1993 totaling approximately $90,000,000 and $92,000,000,
respectively. Home America's revenues were derived primarily from origination
fees, servicing-release fees, and discount income. Home America ceased
operations in November 1995.

    Pursuant to our Settlement Agreement on November 17, 1995 with Robert and
William Bruce concerning Frontier, we retained 100% ownership of Home America
common stock. Home America received a mortgage executed by one of our
consultants in the approximate amount of $200,000, and in 1996, said mortgage
was offset by fees incurred, and the remaining asset and related mortgage debt
of Home America were transferred to Robert and William Bruce.

    On November 17, 1995 we entered into a Settlement Purchase and Sale
Agreement of Corporate Stock with Continent Finance Corporation whereby a change
in control of our board of directors occurred.  We subsequently entered into a
new settlement agreement with Continent Finance Corporation whereby Continent
Finance Corporation would forgive certain debt and cash owed to them and assist
us in the administration of our affairs in exchange for our delivery to
Continent Finance Corporation 100% of any and all interest we had in the common
stock of Home America Mortgage Company, which was then a non-operating shell
company.

    As a non-operating shell, Continent Finance Corporation and our management
were forced to assume all of the operating expenses of Home America Mortgage
Company. The former management of Home America Mortgage Company abandoned Home
America Mortgage Company's offices and subsequently set up their own mortgage
company within the same building.  We are exploring our legal options as a
result of their actions. We subsequently transferred ownership of Home America
Mortgage Company to Continent Finance Corporation.

    In July of 1997, we acquired Continent Finance Corporation's interest in
Home America Mortgage Company and its rights to acquire University Mortgage,
Inc., and we acquired 50% of University Mortgage, Inc. with the right to acquire
the balance of ownership by year's end 1997. The transaction called for us to
issue 1,500,000 shares of our common stock to Continent Finance Corporation and
400,000 shares of our common stock to the sellers of University Mortgage, Inc.,
subject to a reverse split of our outstanding common stock.

    Additionally, Continent Finance Corporation was entitled to receive
additional shares of our Company for work associated with mergers and
acquisitions, assisting in raising capital, obtaining additional market makers
and securing investment banking relationships.  In addition, Continent Finance
Corporation had an option to obtain another 2,000,000 shares of our Company in
the event Home America Mortgage Company and its Balance Sheet could withstand
independent audit review. Management and its auditors could not verify Home
America Mortgage Company's balance sheet and Continent Finance Corporation's
option was canceled.  We carried Home America Mortgage Company at a zero value
at year end 1997. Continent Finance Corporation remained as our administrator
and assisted us in obtaining outside financing and located viable business
opportunities.

    On July 7, 1997, our board of directors authorized a 31 to 1 reverse stock
split of our $1.00 par value common stock which reduced the number of our issued
and outstanding shares of common stock to 101,070. This reverse stock split was
conditioned upon, and occurred  simultaneously with, Continent Finance
Corporation's transfer to us of (i) 100% of the total issued and outstanding
shares of Home America and all the rights it owned in University Mortgage Inc.;
(ii) and its continued  assistance in obtaining capital and viable business
opportunities; in exchange for 1,500,000 shares of our restricted common stock.
According to Continent Finance Corporation's December 31, 1996, Audited Balance
Sheet, Home America was valued at $10,955,315.  This transaction occurred on
August 1, 1997 and provided Continent Finance Corporation with voting control of
our Company. Prior to this transaction, no one person or group possessed voting
control of our Company.

    Our Acquisition of University Mortgage - January 1997

    In December of 1997, we acquired the balance of University Mortgage Inc. for
400,000 restricted shares and a note for $300,000.  The Purchase Agreement call
for a maintenance value for the shares transferred to the seller for (1) one
year.  In the event that the stock price fell, we were obligated to issue
additional restricted class "A" common stock to maintain the original value of
the transaction, which resulted in the issuance of 1,100,000 additional shares
during 1998.

    University Mortgage, Inc. is a mortgage banking company based in Chevy
Chase, Maryland. University Mortgage, Inc.'s principal business is the
origination and sales of purchase, refinance, home equity, home improvement and
debt consolidation loans from residential customers in Maryland, Virginia,
Washington, D.C., Pennsylvania and Delaware. The Company does not retain any
servicing rights on loans it originates.

    In December 1998 we completed restructuring with University Mortgage and our
agreement with Continent Finance Corporation.  FSR Group acquired all debt due
and owing to the sellers of University Mortgage Inc. in exchange for release of
FSR Group's obligations to our Company.  In addition, Continent Finance
Corporation agreed to pay obligations on behalf of our Company.

    In 1999, prior to the sale of University Mortgage Inc. to PCLoan.com,
University Mortgage Inc. sold a substantial control position to one of our
affiliates through the purchase of authorized but unissued shares of University
Mortgage Inc., in exchange for assets and debt assumption.

    Dilution of Our University Mortgage Holdings - July 1999

    On July 31, 1999, we caused our sole operating subsidiary, University
Mortgage, Inc., to issue a significant amount of new stock to M. Scott Hess, one
our directors, in consideration of his investment in University Mortgage, Inc.
of approximately $14,000,000 in assets, notes and securities.  This action
effectively diluted our holding in University Mortgage, Inc. to less than 5%.
Subsequently, in a stock for stock transaction, we exchanged our 3,000,000
shares of University Mortgage, Inc. for 3,000,000 of shares of
VirtualLender.com, Inc., a publically traded company controlled by Mr. Hess.  As
a result, we effectively turned our Company into a publicly traded "shell"
company.

    Other than maintaining our good standing status in the State of Missouri,
and seeking prospective businesses or assets to acquire, from August 1, 1999 to
September 2, 1999, we had no business operations. Our subsidiary company, Home
America remained inactive.

    Since September 2, 1999, we have engaged in the business of manufacturing
competitively  priced custom-configured, build-to- order, unbranded or
"white-box" desktop systems and servers for value added resellers ("VARs"). We
presently do business under the fictitious name of Micromatix.net
("Micromatix").  Unless the context otherwise requires, all references to the
"Company" "we" "our" and other similar terms means Micromatix, but not Home
America Mortgage Company, our other subsidiary company which is presently
inactive.

     Our Recapitalization With Micromatix.com, Inc.

     On September 2, 1999, we entered into a transaction with Red River Trading
Company, Inc. ("Red River"), the sole shareholder of Micromatix.com, Inc., a
Delaware corporation, whereby we recapitalized our Company with Micromatix.com,
Inc., in exchange for consideration payable to Red River equal to $1,375,000,
payable by delivery of: (i) one million shares of Class B common stock at a
deemed price of $1.00 per share, each share of Class B common stock being
entitled to 51 votes; and (ii) 1.5 million shares of Class A common stock at a
market value of $.25 per share. We are treating this transaction as a reverse
merger for accounting purposes, even though we have not yet filed the requisite
articles of merger and other related documents with the applicable state
authorities.

        Acquisition Agremement with LinuxOne, Inc.

         On Novewmber 11, 2000, we signed a Stock Exchange Agreement to acquire
LinuxOne, Inc. LinuxOne, Inc, is a privately held developer of embedded LINUX
thin client systems. Final terms and conditions must be agreed to by both
parties in order to consummate the existing agreement.  On April 5, 2001 the
original contract dated November 11, 2000 was amended to change the transaction
from a merger agreement to an asset acquisition agreement.  The agreement
requires LinuxOne, Inc. to raise $3,000,000 in capital prior to the closing
of the transaction. As of this time, the capital has not been raised.  In
addition, there remain several open due diligence items, including receipt and
review of audited financial statements for LinuxOne, Inc.  Therefore, we do not
anticipate closing in the near future. We are exploring other acquisitions to
compliment its manufacturing capabilities in the computer related industry. We
are also searching for financing to expand our growth internally as well as
acquisitions.

     (b)  Our Present Business

     Since September 2, 1999, we have engaged in the business of manufacturing
competitively  priced custom-configured, build-to- order, unbranded or
"white-box" desktop systems and servers for value added resellers ("VARs"). We
are in our development stage. We presently do business under the fictitious name
of Micromatix.net ("Micromatix").  Unless the context otherwise requires, all
references to the "Company" "we" "our" and other similar terms means Micromatix,
but not Home America Mortgage Company, our other subsidiary company which is
presently inactive.

OUR PRODUCTS

     We manufacture competitively priced custom-configured, build-to-order,
unbranded or "white-box" desktop systems and servers for value added resellers
("VARs"). Our PC systems utilize compatible, industry standard, branded
components as a cost-effective alternative to branded PC systems.  Our goal is
to become the VARs' source-of-choice for build-to-order PC systems.  We intend
to do this by:

     1.   Serving the VARs' integration needs.  We intend to develop an East
          Coast network of local, high quality white-box manufacturers supported
          by an Internet based, state of the art e-commerce system.  Through our
          network of local assembly facilities, we expect to be able to deliver
          high quality white-box PC systems that use compatible, industry
          standard, branded components as a cost-effective alternative to
          branded PC systems. Further, as a large East Coast operator, we expect
          to  also provide VARs with infrastructure and support which is
          typically difficult and costly for a VAR to maintain itself.

     2.   Creating a Web-Centric 'Application' for the VAR to conduct business
          via our state of the art e-commerce system.  We believe that end-users
          are increasingly demanding the ability to customize and purchase
          computer products and services online.  Therefore, we will provide
          solutions designed to provide our customers the ability to offer
          online product configuration, pricing, selection, ordering, tracking,
          and returns capabilities, which in turn will provide the VAR with the
          ability for end-users to easily order computer products and support
          services from their supplier.

      3.  Maintaining Build-to-Order Customer Focus.  We intend to focus on VARs
          and Fortune 1000 companies, and to act as a partner of the VAR rather
          than its competitor.  We provide "just-in-time," local assembly of PC
          systems pursuant to the VAR's customers' specifications upon receipt
          of an order by utilizing in stock industry standard branded
          components, including Intel microprocessors and Microsoft operating
          systems, at the facility serving the VAR which placed the order.  This
          enables us to maintain only limited quantities of components sensitive
          to technological improvement or price decreases and insulate us from
          inventory obsolescence that otherwise might increase our costs. We
          can then pass our cost savings on to the VAR, which, in turn, can
          offer a more competitive price to their customers. As a result, we
          expect the VARs to outsource their assembly, logistics and other
          requirements to us, allowing them to focus on higher margin businesses
          such as providing software, integration and support.

     4.   Consolidating the fragmented white-box market.  We believe that there
          are a large number of attractive acquisition candidates in the highly
          fragmented white-box segment of the PC systems market.  We intend to
          actively seek to acquire companies engaged in the assembly of
          white-box PC systems in targeted geographic markets in order to
          establish an East Coast network of local assembly facilities.  We will
          target companies that have a strong local market share, are led by an
          experienced management team, and that focus on serving VARs.

     5.   Emphasizing Quality Control as Foundation for Growth. Since the
          production of superior quality systems is the foundation on which we
          expect our business will prosper, our strategy is to embrace ISO 9002
          as its foundation for quality since it encompasses all of the
          operating departments of our business and is not just one of the
          latest 'quality fads' that come and go.  When implemented, and
          actively worked, ISO provides key improvements to both the qualities
          of the product and our overall business model.

OUR MARKET

     According to International Data Corporation:

     1.   The total U.S. market in 1998 for PC systems, including desktops,
          notebooks and servers, was approximately 36 million units, accounting
          for approximately $75 billion in revenue.

     2.   It is estimated that this market will grow at a compounded annual
          growth rate of 12.1% over the next three years.

     3.   It is estimated that the white-box PC market accounts for more than
          20% of all U.S. PC shipments, which makes the white-box market the
          biggest 'brand' of PCs sold in the United States. In 1998, 8.3 million
          white-box PC systems were sold, compared to 3.3 million units sold by
          Compaq (the leading PC systems manufacturer), 2.7 million units sold
          by Dell, 1.9 million units sold by Hewlett-Packard, and 1.5 million
          units sold by IBM.

     4.   The white-box market expanded at a unit rate of at least 15% in 1998
          and it is currently maintaining its share by growing at least in line
          with the overall industry average.

OUR CUSTOMERS   RESELLERS/VARs

     The white-box market includes:

     1.   Small business and small office marketplaces (primary
          market);
     2.   State and local government;
     3.   Educational institutions;
     4.   Home offices;
     5.   Consumer markets;
     6.   Some medium-sized and large businesses.

     We believe the lower cost of a white-box PC compared to a branded PC is an
important factor for small businesses, which makes up our primary market.  In
addition, many VARs appear to be more inclined to recommend white-box PCs to
their small business customers over branded PC's due to:

     1.   Quality control principles. VARs can easily assemble desktop PCs,
          notebooks and servers and perform their own diagnostic burn-ins,
          ensuring that each unit meets high quality standards prior to delivery
          to the VAR's customer.

     2.   Enhanced customer service. Since the same branded components used by
          manufacturers of branded PCs are available to VARs on short notice,
          VARs can offer their customers a greater choice in components and can
          configure the white-box PC to meet their customers' requirements.

     3.   Greater profit margins.  International Data Corporation research shows
          that reseller margins are greater for white-box PCs than for branded
          PCs.  On average, white-boxes with the same components as a branded
          system can return margins as high as 20% to the manufacturer.

OUR VENDOR RELATIONS

     We have accounts with numerous suppliers that provide us with the
components required to custom configure systems for our customers.  Our
purchasing decisions are primarily governed by pricing and availability.  We
currently do not have any guarantees to purchase from specified vendors for any
parts.  Conversely, we also do not have any contracts that require any vendor to
segregate and maintain inventory for our consumption.  As a result, we are
dependant upon market conditions to obtain products at reasonable prices that
allow us to operate profitably.  Should market conditions experience any
shortages or price hikes, we would be subject to such conditions and would be
unable to compete with other companies with supplier contracts.

OUR COMPETITION

     The PC systems industry is highly competitive and has been characterized by
intense pricing pressure, generally low gross margin percentages, rapid
technological advances in hardware and software, frequent introduction of new
products and rapidly declining component costs.  Our current and potential
competitors can be divided into three primary groups:

     1.   Other white-box manufacturers;
     2.   Distributors; and
     3.   Branded PC system manufacturers.

     Other White-Box Manufacturers.

     We compete for market share against other white-box manufacturers.
Competitive factors in the white-box PC systems market include:

          (a)  Product quality and availability;
          (b)  Price;
          (c)  Brand name components;
          (d)  Marketing and distribution resources; and
          (e)  Customer service and support.

     We believe that we can strongly compete against other white-box
manufacturers with respect to each of these factors since we expect to be in the
unique position of being the only white-box manufacturer with a nationwide
presence.  As a result, we should be able to negotiate favorable terms with
vendors of branded components and achieve efficiencies and economies of scale
not typically available to white-box manufacturers located in more remote
locations.

     Distributors.

     We also compete for market share against distributors of PC systems. Many
of these competitors are well-established and possess greater financial,
marketing, technical, personnel and other resources than we do, and we cannot
assure that we will have the ability to compete successfully. Our financial
resources are relatively limited when contrasted with these competitors.

     However, we feel we can compete with these competitors to a certain degree
since we intend to act as a VAR's partner and sell and distribute our PC systems
and components exclusively to VAR's and not their customers, while PC system
distributors market their products to both VARs and end-users, the VARs'
customers. We believe that acting as a VARs' partner, instead its competitor,
will cause the VAR's  to source their PC systems needs from us rather than from
other non-exclusive distributors.

     Branded Manufacturers.

     We also compete for market share against regional, national and
international manufacturers of branded PC systems, all of which are
well-established and possess significantly greater financial, marketing,
technical, personnel and other resources than we do. We cannot assure that we
will have the ability to compete successfully against any of these competitors.
The dominant companies in the branded PC system industry are Compaq, Dell,
Gateway, IBM, Apple, and Hewlett-Packard.

     However, although the residual resistance of consumers to unbranded PC
systems remains a challenge to us, we feel we are well positioned to face
 challenges from this segment of the PC systems market due to the growing
acceptance of the white-box, as well as the higher sales and marketing expenses
which such manufacturers of branded systems must internalize and pass on to
their customers.

OUR FACILITIES

     Our executive and business offices and manufacturing facilities are located
at 1625 Knecht Avenue, Baltimore, Maryland 21227.  Our facilities consist of
approximately 40,000 square feet of space.  We believe our facilities are
adequate for our reasonably foreseeable needs. See "Description of Property".

OUR EMPLOYEES

     We presently employ 40 full time and 8 part time personnel who work in
management, administration, sales, assembly, and warehousing. We have also
contracted with two consulting executives to advise in our business development,
business strategies and securities and investment banking activities. We
consider our employee relations to be good, and none of our employees are
represented by a labor union. We believe that our future success will depend in
part on our continued ability to attract, integrate, retain and motivate highly
qualified sales, technical, and managerial personnel, and upon the continued
service of our senior management and key sales and technical personnel.

     Our success depends upon our senior management and operational management,
particularly, C. Timothy Jewel, our President and Chief Executive Officer. The
loss of any one of their services  could have a material affect on our Company.
Although Mr. Jewell and Mr. Cary  have entered into employment arrangements with
us, neither the final terms of  Mr. Jewell's nor Mr. Cary's employment agreement
with us have been determined  and placed in written form.

     Most of our technical personnel are not bound by employment agreements that
prevents such personnel from terminating his or her relationship with us at any
time for any reason. At times we have experienced difficulties in attracting new
personnel. We cannot assure that we will successfully attract, integrate, retain
and motivate a sufficient number of qualified personnel to conduct our business
in the future.

Item 2.   Properties.

       Our executive and business offices and manufacturing facilities are
located at 1625 Knecht Avenue, Baltimore, Maryland 21227.  Our facilities
consist of approximately 40,000 square feet of space.  We believe our facilities
are adequate for our reasonably foreseeable needs.

Item 3.   Legal Proceedings.

     In July of 1999, Bowne & Co., Inc., a financial and corporate printer,
filed suit against us in New York, seeking  approximately $18,000 for, among
other things, outstanding printing invoices. The suit is still pending.

         In August 2000 Interim Atlantic Enterprises, LLC filed suit against us
for $11,038. This suit concerns a claim that an employee did not work the
minimum number of days required under the terms of a contract between IMTL and
Interim Atlantic Enterprises, LLC.  The suit is still pending.

         On March 28, 2000, Microsoft Corporation filed a complaint against us
and an employee for alleged copyright and trademark infringement and related
causes of action.  On November 7, 2000 we filed an answer denying all of
Microsoft's claims.  The suit is still pending.

One of the larger customers, Creative Personalities, Inc., failed to pay a
substantial invoice, and we filed suit on September 28, 2000. This receivalbe
total $__________. Efforts to settle this case have failed as of March 17, 2001.
We will continue these efforts at the direction of the court untill the trial
date.

       No other material legal proceedings are pending to which we are a party.

Item 4.   Submission of Matters to a Vote of Security Holders.

     No matter was submitted to a vote of our security holders during the fourth
quarter of our fiscal year.


                                     PART II

Item 5.   Market for Common Equity and Related Stockholders Matters.

     (a)  Market Information

     Our Class A Common Stock ("common stock") has been traded on the
over-the-counter market since 1971. The following table sets forth the range of
high and low bid quotations for each quarterly period in the fiscal years ended
December 31, 2000 and 1999, as reported by over-the-counter market quotations.
The quotations reflect inter-dealer prices, without retail mark-up, mark down or
commission and may not represent actual transactions.

 [TO BE UPDATED]
                      High                       Low
                Bid       Asked           Bid            Asked

1998
1st Quarter    $5.25       $6.25          $0.50          $1.00
2nd Quarter    $2.625      $2.75          $0.75          $1.25
3rd Quarter    $2.00       $2.125         $0.75          $1.125
4th Quarter    $1.25       $1.50          $0.40625       $0.53125

1999
1st Quarter    $0.625      $0.8125        $0.1875        $0.125
2nd Quarter    $0.34375    $0.375         $0.0625        $0.125
3rd Quarter    $0.30       $0.50          $0.03125       $0.09375
4th Quarter    $0.8125      $1.00         $0.125         $0.21875


     (b)  Holders

     As of __________, 2001, there were approximately ___________ holders of
record for our Class A Common Stock and ___________ holders of record for our
Class B Common Stock (the latter is not traded).

     (c)  Dividends

     No cash dividends were declared or paid on either class of our common stock
for the last two fiscal years.  No restrictions limit our ability to pay
dividends on our common stock.

     Recent Sales of Unregistered Securities

[TO BE PROVIDED]

Item 6.   Management's Discussion and Analysis or Plan of Operation.



CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HORBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The following discussion regarding International  Mercantile Corp ("the Company"
or "IMTE") and its business and operations contains "forward-looking" statements
within the meaning of Private Securities Litigation Reform Act of 1995. These
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"except," "anticipate," "estimate," or "continue" or the negative or other
variations thereof or comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative and there are risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements, including no history
of profitable operations, competition, risks related to acquisitions,
difficulties in managing growth, dependence on key personnel and other factors
discussed under the section titled "Management's Discussion and Analysis or plan
of Operations-Factors That May Affect Future Results" in the Company's annual
report on the form 10-K for the year ended December 31, 2000. The Company does
not have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence of management over time means that actual
events are occurring as estimated in such forward-looking statements.

     The following discussion and analysis should be read in conjunction with
the financial statements appearing as Item {1} to this Report. These financial
statements reflect the operations of the Company for the years ended  December
31, 2000 and December 31, 1999.


(a) Results of Operations


     For the period of operations since inception on 9/2/99 and ending
12/31/99, our Company  posted  total sales of $1,465,294.  Total sales for
the twelve months ended  12/31/00 were 7,064,025.  While sales for the
first quarter were strong, sales  for the  second  quarter  were  subject  to
a  flattening  due to  market conditions  that were reflected  throughout
the technology  industry as a whole.  Average monthly sales for the twelve
months ended 12/31/00 increased 61% over the average  monthly  sales for the
fourth quarter of 1999. We were able to realize this degree of growth due to
the  groundwork  we  established during the first quarter of our operations.
Our management recruited top sales personnel, with significant  customer
bases,  which reflect our goals in both our target markets and  reseller
qualifications.  As a result of hiring these salespersons, we obtained an
immediate  clientele with existing  purchasing  power, and increased sales
began  to materialize.  Since our manufacturing, warehouse facility,
administration,  technical support and purchasing departments were
staffed with  quality  personnel,  we were able to respond  and fulfill the
needs of our customers. Unfortunately, this build up occurred with the
anticipation of a capital infusion. Capital was then, and is now, required in
order to have the inventory necessary to increase sale volume that can be
created by this team. As a result fixed overhead that has been built up caused
a significant loss in 2000.

         In the third quarter of 2000, management began reducing the SG&A to
compensate for the lack of funding and the change in market conditions that
slowed down demand for product throughout the industry.

         The same market conditions currently exist in the financial market,
where NASDAQ stocks have plummeted in value and have brought a dramatic decline
in the value of our stock position in VLDC. This decline is shown as a
non-operating loss in our year ended December 31, 2000 statement. Additionally,
this slow down has caused delays in our ability to raise additional capital
necessary to expand our business.

     The industry trends which effected the Company's sales also effects our
customer's  ability to pay their  balances to us in a timely  manner.  While
the majority of our customers are current and paying on a timely basis.

Our largest receivable refused to pay and we were forced to file suit on
September 28, 2000. This receivable totals $628,745. We have increased our
reserve for doubtful accounts to $410,870 in order to compensate for our
evaluation of this receivable. Efforts to settle this case have failed as of
March 17, 2000. We will continue these efforts at the direction of the court
until the trial date.


(b)  Plan of Operation

     Our primary emphasis through December 31, 1999 was placed upon our
capitalization,  the establishment of our website, our internal infrastructure,
our production lines and the development of our marketing team.  During the year
ended December 31, 2000, we placed more emphasis on sales and  production. We
endeavored to increase sales by capturing a larger  percentage of the growth in
the white box market.

         Plans for 2001 have been dramatically altered to compensate for the
lack of funding at this time. Management believes that demand for product will
return in 2001, but we are reacting cautiously.

         In order to reduce Overhead, we are negotiating to sub-let part of our
facility. If successful, we will reduce our occupancy expense by approximately
33.3%. Other measures have been taken, which we believe will reduce
our Overhead by approximately 60%.

         Further growth in sales and profitability is dependant upon capital
infusion. Funds are needed to increase our inventory of parts, so that we can
increase our sales volume in the future.

         Current efforts to secure capital are in motion. We are negotiating
with several groups with various funding alternatives. These range from private
placements of equity or debt to SB-2 Registration.

         Reductions in SG&A expenditures and an increase in our GROSS PROFIT
MARGIN should now allow us to break even at a $900,000 monthly sales volume per
month or approximately $10,800,000 per year.

     In addition, future growth strategies may include strategic acquisitions
should opportunities arise which would not jeopardize current operations.
The Company has signed a Stock Exchange Agreement (Amended To Asset Purchase
Agreement) to acquire LINUX One, inc, or its assets. LINUX One, inc, is a
privately held developer of embedded LINUX thin client systems. Final terms and
conditions must be agreed to by both parties in order to consummate the
agreement.  This agreement requires LINUX One to raise $3,000,000 in capital
prior to the closing of the transaction. As of this time, the capital has not
been raised and therefore, we do not anticipate closing in the near future.
The company is exploring other acquisitions to compliment its manufacturing
capabilities in the computer related industry. We are also searching
for financing to expand our growth internally as well as acquisitions.

Marketing

     We currently have a sales force consisting of six account executives,
with varying degrees of experience, but all with knowledge of computers
essential to assisting customers in configuring their orders optimally. In
addition, we have an account executive specializing in government sales and
marketing,  along with the management of our strategic  corporate accounts
(Fortune 500). Our website allows our customers  and potential customers to view
our specials and to apply for  active  account  status. In the year 2001, we
have plans to upgrade our website to allow our customers to custom  configure
their orders  online,  with real-time interaction with our inventory software to
allow them to ascertain availability of product, and an order tracking function
which will allow the customer to monitor their orders progress through
production. We anticipate that this upgrade will cost approximately $75,000. Our
sales department is currently faxing to all current customers and potential
customers in our extensive database our specials on a weekly basis.
Additionally, we have tele-marketers calling and updating our database of
prospective customers on a daily basis.

Production

     Our production department is designed for flexibility and staffed with
skilled assemblers and system integration technicians.  Small to medium
quantity orders can be easily produced on our existing  custom  configuration
line.  In addition, we have the capability, at very short notice, activating an
assembly line of skilled workers for large production builds. As these contracts
increase in consistency and quantity, these additional workers will be
utilized on a permanent basis. Our production facility has the capacity to add
additional assembly lines on an as needed basis. We have completed the required
independent audit for ISO 9002 certification and we were certified on
April 26, 2000. The ISO 9002 certification is an internationally accredited
standard, which guarantees that our product is processed to the highest quality
standard. In addition, it allows our Company to participate in and be awarded
state and federal government contracts.


Inventory

         As mentioned in Results of Operations and Plan of Operation, capital to
increase the inventory is essential to the sales goals we have set for the
company.    We manage the quantity and quality of our component inventory
through our experienced purchasing personnel and warehousing policy and
procedures.  We strive to maximize our responsiveness to customer requirements
while optimizing inventory turnovers.  Inventory management is critical to
the success of our business.  Our strategy is to focus on products with high
turnover ratios to reduce exposure to product obsolescence,  changing consumer
demands and  declines in  market  prices, while  still fulfilling  the
needs of our  customers.  Our software program facilitates the control of
purchasing,  inventory, and accounts payable.  Each sales representative has
available real-time data with respect to our inventory levels. We believe
that we are able to take advantage of synergies and efficiencies arising out of
the combination of system assembly and inventory warehousing in a single
facility.

Vendor Relations

     Our Company has accounts with numerous suppliers that provide us with
the components  required to custom configure systems for our customers.
Pricing and availability primarily govern our purchasing decisions. We
currently do not have any guarantees to purchase from specified vendors for
any parts. Conversely, we also do not have any contracts that require any
vendor to segregate and maintain inventory  for our  consumption.  As a
result, we are at the mercy of market conditions  to obtain  products  at
reasonable  prices that allow us to operate profitably. Should market
conditions experience any shortages or price hikes, we would be subject to
such  conditions  and would be unable to compete  with other companies with
supplier contracts.

     In the second quarter we were extended additional credit by many of
our vendors,  or have made  arrangements to repay debts in  installments
until such time as the Company can complete it's arrangements for additional
funding.

Certain Factors That May Affect Future Results

     The white box PC industry is highly competitive.  Competition is largely
based on price, quality,  range of service offered, shipping capabilities,
customer service, and product availability.  Many of our competitors are
larger, more established, and have greater name  recognition and financial
and marketing resources  than our  Company.  As a result, we could potentially
experience downward pricing pressure and increased competition, which would
drive down our revenues by either forcing a cut in our sales or in our prices.
There is always the risk of general market down turn,  which could adversely
impact our revenues and our growth.

     We are considered a start-up company and have no significant operating
history as Micromatix.net.  We have not generated significant revenue to
date to support operations on an ongoing  basis.  We cannot assure that we
will achieve sufficient  revenues to offset our anticipated operating  costs.
Our viability, profitability  and  growth depend  upon our  meeting  our
sales  goals and our attaining  sufficient  financing to purchase inventory
at competitive prices. We cannot  assure  that  we  will be able to generate
revenues  or ever  achieve profitable operations.

     We have limited capital.  We require significant capital to developed
our business and acquisition program.  To date all of our costs have been
funded via sales of common stock and loans. We will continue to require
significant funds as we grow.

     We are currently generating limited revenue from our operations.  Other
than as discussed elsewhere herein, we have no current arrangements in place
with respect  to sources  of  additional financing. If we have to arrange
for financing to further the development of our business, we cannot assure
that such financing will be available on acceptable terms or at all. Our
inability to obtain additional financing, when needed, would have a material
adverse effect on us, including  possibly  requiring us to curtail or cease
our operations.

    Demand and market acceptance for white box PC systems are subject to a
high level of uncertainty.  We cannot assure that widespread acceptance of
white box PC systems, or our products in particular, will occur. We will
rely on Value Added Retailers {VAR's} who utilize white box PC systems to
purchase our products.  In order for us to be successful, these VAR's must
perceive us as their partner, not their competitor.  Further, issues
concerning the reliability, cost and quality of white box PC systems  may
affect our  market.  We cannot assure that VAR's will view us as "partners"
and  utilize our  products.  If our products do not achieve market
acceptance, our business, results of operations and financial condition
could be materially adversely affected.

Item 7.   Financial Statements

    Our Financial Statements are attached as Appendix A (following Exhibits) and
included as part of this Form 10-KSB Report.  A list of our Financial Statements
is provided in response to Item 13 of this Form 10-KSB Report.

Item 8.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure.

  Not Applicable


                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

  (a)  Identity of directors and executive officers.

Name                  Age       Position                   Director Since


Maxwell Apple         61        Director, Chairman of the
                                Board, Secretary              1991

C. Timothy Jewel      43        President, Chief Exec.
                                Officer                       *

Frederic Richardson   40        Director, Treasurer,          1997
                                Executive V.P., Ass't
                                Secretary, Chmn. Emeritus

Edward A. Hutya       56        Director                      1997


    Each director is elected until the next Annual Meeting of shareholders and
until his successor is qualified.

    (b)  Business experience of directors and executive officers.

    Mr. Maxwell W. Apple has been one of our directors since 1991, and has also
served as our Secretary since 1995.  Mr Apple is a former judge and currently a
member of the Indiana Bar. He has been involved in various business ventures
which include owning Nunur Corporation, a company which owned commercial and
residential properties, being a partner in French Lick Springs Golf and Tennis
Resort, L.P., and being the sole shareholder of The Paoli Corporation, a company
specializing in the manufacturing of wood products and operating lumber dry
kilns. He received his Juris Doctor Degree from the Indiana University School of
Law and also attended the National College of the State Judiciary and Indiana
Judicial College during.

    Mr. C. Timothy Jewell has been our President and Chief Executive Officer
since September 1999.  From 1997 to 1999, Mr. Jewel served as general manager of
Arbor Computer Company, a computer manufacturing company. Prior to that time,
Mr. Jewell served as a consultant with CTJ Enterprises, Inc., a computer systems
integration consulting firm. Mr.  Jewell received a Bachelor of Science degree
in accounting from the University of Tennessee in 1976 and an MBA in Finance
from Southeastern University in 1980.

    Mr. Frederic S. Richardson has been our director since September 1998.  He
also served as our Chief Financial Officer during 1998 and part of 1999. Mr
Richardson is experienced in insurance, mortgage and financial services
transactions. He focuses on structuring transactions for private and public
entities, raising capital, and identifying acquisition targets. Since 1994,
Mr. Richardson has been the President of Maccabean Industries, Inc., a
consulting firm specializing in raising capital for companies in the financial
services industry and real estate market. Mr. Richardson received a degree in
Economics from the University of Maryland in 1983 and a Masters in Business
Administration from American University in 1996.

    From 1991 until its liquidation in February 1994, Mr. Richardson was a
director and officer of Corporate Life Insurance Company ("CLIC"), a stock life
insurance company from 1991 until its liquidation in February 1994. He was the
controlling stockholder of the corporate parent and controlling stockholder of
CLIC. In June 1995, Linda L. Kaiser, the Insurance Commissioner of Pennsylvania
and CLIC's Statutory Liquidator, filed a complaint against Mr. Richardson (and
others) alleging, among other things, that he engaged in fraudulent and
negligent conduct in his operation of CLIC causing the company to lose millions
of dollars and finally collapse. CLIC was liquidated and dissolved by the
Insurance Commissioner. In October 1997, Mr. Richardson entered into a
Settlement Agreement with the Insurance Commissioner pursuant to which he was
released from the lawsuit and from any further liability. Pursuant to the terms
of the Settlement Agreement, the policy limits of Mr. Richardson's insurance
policy were paid to the Statutory Liquidator. In addition, he agreed not to
accept any position of executive authority with any Pennsylvania domiciled
insurance company without the consent of the Commissioner and agreed not to
accept any position of executive authority with any other insurance company for
a period of ten years.

    Mr. Edward A. Hutya has been one of our directors since 1997. He also served
as our vice president until September 1999. He is currently the president of the
Center of Independent Living and a consultant to Riverside Healthcare
foundation, two not-for-profit organizations. Mr. Hutya has many years of
experience in the operations and acquisitions of health care properties. During
his tenure as president of several not-for-profit corporations, Mr. Hutya
directed corporate development for the acquisition of housing and nursing
facilities for the elderly and special populations. Mr. Hutya also selected and
hired management companies which operated nursing homes. Prior to his
involvement with not-for-profit organizations, Mr. Hutya specialized in
financing, including equipment, vehicles, real estate and governmental leasing
and financing. Mr. Hutya received a degree in Economics from the University of
Connecticut in 1965, and participated in graduate work in Urban Economics at
American University.

Officer and Director Resignations

     On ____________, 2000, Bernard Cary resigned as Vice President and Chief
Operating Officer of our Company.

     Section 16(a) Beneficial Ownership Reporting Compliance.

     To the best of our knowledge, based solely on reports furnished to us, none
of our officers, directors and/or beneficial owners of more than 10% of our
common stock, filed any reports as required by Section 16(a) of the Exchange Act
during the most recent fiscal year.





Item 10.  Executive Compensation.

                                                                  Long Term Compensation
                                                                  ----------------------
                 Annual Compensation                          Awards               Payouts
                 -------------------                          ------               --------
 (a)            (b)       (c)         (d)         (e)          (f)           (g)         (h)        (i)
                                                 Other                                             All
Name &                                          Annual     Restricted    Securities               Other
Position        Year    Salary ($)   Bonus($)    Compen-    Stock         Underlying    LTIP       Compen-
                                                 sation     Award(s)      Options/      Payouts    sation
                                                  ($)         ($)         Sars(#)        ($)        ($)
---------------------------------------------------------------------------------------------------------------


Frederic S.     2000     ___          -0-          -0-          -0-           -0-      $120,000 (1)
Richardson
Director, Exec.
Vice Pres., Trea.
Asst. Secretary
Chmn. Emeritus
of the Board
(1)

Timothy         2000     ___          -0-         -0-           -0-          -0-         -0-        $35,773 (4)
Jewel,
Chief Exec.
Officer,
President (2)

Bernard Cary,
Former Vice
Pres., Chief
Oper. Officer






Notes to table:

     (1)  On May 1, 1995, we entered into a compensation plan financial
          consulting agreement with Frederic Richardson for a monthly fee of
          $10,000 per month and reimbursement of all "out-of-pocket" expenses.
          The term of this agreement is 10 years and is renewable. The agreement
          was assigned to FSR Group, Inc. ("FSR") a company owned by the Sarah
          Saul Simon Trust, in October 1997. Commencing January 1, 1999, the
          agreement was reassigned by FSR to Mr. Richardson.
     (2)  In September 1999, Mr Jewel, through Red River Trading Company, Inc.
          entered into employment arrangements with our Company whereby in
          exchange for Mr. Jewell serving as our director, chief executive
          officer and president, Red River Trading Company, Inc. would be
          compensated $10,000 per month.  The exact terms of this employment
          arrangement with our Company has not been determined, and no written
          employment arrangement with our Company has yet been entered into.
          [NEED TO CONFIRM]

     Employee Stock Option Plan

     Our board of directors has authorized our officers to offer certain
employees, including non-management employees, certain employee benefits under
an unqualified employee stock option plan. To date, we have do not have a
written plan in place.  The terms of the options we grant to our employees are
contracted between each employee and our Company on a case by case basis. No
options have vested to date.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

     (a)  The names, addresses, amount and nature of beneficial ownership and
percent of such ownership of persons known to us to be beneficial owner of more
than five percent (5%) of any class of our voting securities as of _________,
2001 are as follows:

Class A Common Stock
                               Number of shares of
Name and Address of            Class A Common Stock       Percent
Beneficial Owner (1)           Beneficially Owned (2)     Of Class

Sarah Saul Simon Trust(3)      1,523,667 (D)              10.8%

C. Timothy Jewell (4)          1,500,000 (I)              10.6%

VirtualLender.com, Inc.        3,000,000 (D)              21.2%


(1)  In care of our Company's address at 1625 Knecht Avenue, Baltimore, Maryland
     21227.
(2)  To our best knowledge, as of _________, such holders had the sole voting
     and investment power with respect to the voting securities of the Company
     beneficially owned by them, unless otherwise indicated herein.
(3)  Includes 1,500,000 shares of Class A Common Stock owned by the Sarah Saul
     Simon Trust, the beneficiaries of which are Mr. Richardson's children, and
     the trustees of which are Mr. Richardson's mother and sister-in-law; and
     23,667 shares of Class A Common Stock owned by Continent Finance
     Corporation which is owned by the Sarah Saul Simon Trust. Mr. Richardson
     disclaims beneficial ownership of these shares.
(4)  All of these shares are held indirectly by Mr. Jewell through Red River
     Trading Company. Mr. Jewell is the president of Red River Trading Company,
     Inc., and his wife, Mrs. Shannon C. Jewell, is its sole owner.

Class B Common Stock (1)
                               Number of shares of
Name and Address of            Class A Common Stock       Percent
Beneficial Owner (1)           Beneficially Owned (2)     Of Class

Sarah Saul Simon Trust (4)     1,000,000 (D)              50%

C. Timothy Jewell (5)          1,000,000 (I)              25%


(1)  Each share of Class B common stock is entitled to 51 votes.
(2)  In care of our Company's address at 1625 Knecht Avenue, Baltimore, Maryland
     21227.
(3)  To our best knowledge, as of the date hereof, such holders had the sole
     voting and investment power with respect to the voting securities of the
     Company beneficially owned by them, unless otherwise indicated herein.
(4)  The beneficiaries of the Sarah Saul Simon Trust are Frederic Richardson's
     children. The current trustees are Mr. Richardson's mother and
     sister-in-law.
(5)  All of these shares are held indirectly by Mr. Jewell through Red River
     Trading Company. Mr. Jewell is the president of Red River Trading Company,
     Inc., and his wife, Mrs. Shannon C. Jewell, is its sole owner.

     (b)  The names, addresses, amount and nature of beneficial ownership and
          percent of such ownership of our officers and directors who are the
          beneficial owner of our voting securities as of March 31, 2000, are as
          follows:

Class A Common Stock

                               Number of shares of
Name and Address of            Class A Common Stock       Percent
Beneficial Owner (1)           Beneficially Owned (2)     Of Class

Frederic S. Richardson(3)(4)       48,000    (D)            *


Class A Common Stock

                               Number of shares of
Name and Address of            Class A Common Stock       Percent
Beneficial Owner (1)           Beneficially Owned (2)     Of Class

C. Timothy Jewell (5)          1,500,000 (I)               10.6%

Bernard C. Cary                   -0-                       -0-

Maxwell W. Apple (6)             380,000 (D)                2.7%

Edward A. Hutya (7)              180,000 (D)                1.3%

All officers and directors
as a group (5 persons)(8)      2,108,000                   14.9%

*    Less than 1%.

(1)  In care of our Company's address at 1625 Knecht Avenue, Baltimore, Maryland
     21227.
(2)  To our best knowledge, as of December 31, 1999, such holders had the sole
     voting and investment power with respect to the voting securities of the
     Company beneficially owned by them, unless otherwise indicated herein.
(3)  Does not include 1,500,000 shares of Class A Common Stock owned by the
     Sarah Saul Simon Trust, the beneficiaries of which are Mr. Richardson's
     children, and the trustees of which are Mr. Richardson's mother and
     sister-in-law. Mr. Richardson disclaims beneficial ownership of these
     shares.
(4)  Does not include 23,667 shares of Class A Common Stock owned by Continent
     Finance Corporation which is owned by the Sarah Saul Simon Trust, the
     beneficiaries of which are Mr. Richardson's children, and the trustees of
     which are Mr. Richardson's mother and sister-in-law. Mr. Richardson
     disclaims beneficial ownership of these shares.
(5)  All of these shares are held indirectly by Mr. Jewell through Red River
     Trading Company. Mr. Jewell is the president of Red River Trading Company,
     Inc., and his wife, Mrs. Shannon C. Jewell is its sole owner.
(6)  Includes (i) 260,000 shares of which are owned directly by Mr. Apple, and
     (ii) the right to acquire 120,000 shares within 60 days.
(7)  Includes 60,000 shares of which are owned directly by Mr. Hutya, and (ii)
     the right to acquire 120,000 shares within 60 days.
(8)  Includes (i) 1,868,000 shares owned directly or indirectly by such officers
     and directors, and (ii) the right of certain of such persons to acquire
     240,000 shares within 60 days.

Class B Common Stock (1)

                                Number of shares of
Name and Address of            Class A Common Stock       Percent
Beneficial Owner (1)           Beneficially Owned (2)     Of Class


C. Timothy Jewell (5)            500,000 (I)               25%

Bernard C. Cary                  500,000 (D)               25%

[CHANGE TO RED RIVER FOR ALL?]

(1)  Each share of Class B common stock is entitled to 51 votes.
(2)  In care of our Company's address at 1625 Knecht Avenue, Baltimore, Maryland
     21227.
(3)  To our best knowledge, as of March 31, 2000, such holders had the sole
     voting and investment power with respect to the voting securities of the
     Company beneficially owned by them,  unless otherwise indicated herein.
(4)  All of these shares are held indirectly by Mr. Jewell through Red River
     Trading Company. Mr. Jewell is the president of Red River Trading Company,
     Inc., and his wife, Mrs. Shannon C.  Jewell, is its sole owner.

Item 12.  Certain Relationships and Related Transactions.

     On July 31, 1999, we caused our sole operating subsidiary, University
Mortgage, Inc., to issue a significant amount of new stock to M. Scott Hess, one
our directors, in consideration of his investment in University Mortgage, Inc.
of approximately $14,000,000 in assets, notes and securities.  This action
effectively diluted our holding in University Mortgage, Inc. to less than 5%.
Subsequently, in a stock for stock transaction, we exchanged our 3,000,000
shares of University Mortgage, Inc. for 3,000,000 of shares of
VirtualLender.com, Inc., a publically traded company controlled by Mr. Hess.  As
a result, we effectively turned our Company into a publicly traded "shell"
company.

     On September 2, 1999, we entered into a transaction with Red River Trading
Company, Inc. ("Red River") whereby we acquired 100% of the issued and
outstanding shares of Micromatix.com, Inc., a Delaware corporation
("Micromatix"), in exchange for $1,375,000, payable by delivery of (i) one
million shares of Class B common stock at a deemed price of $1.00 per share.
Each share of Class B common stock is entitled to 51 votes; and (ii) 1.5 million
shares of Class A common stock at market value of $.25 per share. At the time of
this transaction, Red River was an unrelated third party and this transaction
was negotiated at arms length. The president of Red River is C. Timothy Jewell.

     Pursuant to this transaction, we have a put option to return the Micromatix
shares back to Red River if Micromatix fails to implement its business plan and
achieve certain performance benchmarks. This put option expires September 2,
2000.  If we exercise our put option, Red River must return to us all of their
shares of Class A and Class B common stock.  Additionally, Red River is required
to repay any funds that we, or any third party, invested into Micromatix .  This
obligation is to be evidenced by a promissory note payable in 24 equal monthly
installments, guaranteed by Red River and secured by all of the capital stock
and assets of Micrormatix.

[NEED TO DECIDE HOW TO PORTRAY THE CURRENT STATUS OF THIS TRANSACTION.]

     Additionally, Red River has a put option to reacquire Micromatix and return
all of its  Class A and Class B common stock to us if we do not invest, directly
or indirectly, $350,000 in Micromatix on or before November 30, 1999 (excluding
$150,000 which was invested at closing), If Red River exercises its put option,
Red River must repay all funds we invested in Micromatix, in the same manner as
described above.  This put option expires September 2, 2000.

     Our agreement with Red River also provides that we shall hold our annual
meeting of stockholders and a meeting of our board of directors no later than 60
days after closing to consider and act upon the following matters:

     (1)  a 2 for 1  reverse stock split of the Class B common stock;
     (2)  payment of a dividend consisting of the issued and outstanding common
          shares of University Mortgage, Inc., the registrant's wholly-owned
          subsidiary;
     (3)  the issuance to our chairman, Frederic S. Richardson, of 1.5 million
          shares of Class A common stock, or options to purchase such shares, in
          consideration of services rendered;
     (4)  an employee stock ownership or option plan to attract and retain key
          employees;
     (5)  an agreement with Swartz Institutional Finance for the purchase and
          sale of shares of Class A common stock for $5 million;
     (6)  amendment of the certificate of incorporation to change the
          registrant's name to Micromatix or a derivative thereof; and
     (7)  changing the domicile of the registrant to Delaware.

     Item 3, as described above was successfully implemented. Other than with
respect to item 5., we intend to implement the remaining items during 2000.

     Additionally, at the closing, we made the following changes in our
management structure:

     (1)  Michael Scott Hess resigned as our Director and President.
     (2)  C. Timothy Jewell, Red River's President, was appointed as our new
          President; and
     (3)  Bernard Cary was appointed as our Vice President and Chief Operating
          Officer.

     On September 7, 1999, we purchased fixed assets in the amount of $150,000
from Red River Trading for which we made an unsecured note payable to Red River
in the amount of $150,000, bearing interest at 8% per annum. The note calls for
six annual principle payments of $25,000 plus accrued interest.

     On November 23, 1999, we borrowed $571,609.40 from the Sarah Saul Simon
Trust for which we made an unsecured note payable to the Sarah Saul Simon Trust
in the amount of $571,609.40, bearing interest at 8% per annum until the note
payable is paid in full. The note payable calls for a lump sum principle payment
of $571,609.40 plus accrued interest, all of which is due on November 23, 2000.

     During the fourth quarter of 1999, Frederic Richardson advanced us $261,322
on his personal credit card so that we could purchase inventory.  We are making
payments on Mr. Richardson's credit card for this purchase.  The credit card
interest rate is 14% per annum.

     On May 1, 1995, the Company entered into a compensation plan consulting
agreement with Frederic Richardson for a monthly fee of $10,000 per month and
reimbursement of all "out-of-pocket" expenses. The term of this agreement is 10
years and is renewable. The agreement was assigned to FSR Group, Inc. ("FSR"), a
company owned by the Sarah Saul Simon Trust, in October 1997. Commencing January
1, 1999, the agreement was reassigned by FSR to Mr. Richardson.

Item 13.  Exhibits and Reports on Form 8-K.

     (a)   Exhibits.

 (3)(i)    (a)  Articles of Incorporation (incorporated by reference to our
                Report on Form 10-K for the year ended December 31, 1981).
           (b)  Articles of Amendment (incorporated by reference to our Report
                on Form 10-K for the year ended December 31, 1981).
           (c)  Articles of Amendment (incorporated by reference to our Report
                on Form 10-K for the year ended December 31, 1998).
           (d)  Articles of Amendment (incorporated by reference to our Report
                on Form 10-K for the year ended December 31, 1998).
[ADD AMENDMENT INCREASING PAR VALUE OF CLASS A SHARES]
 (3)(ii)        Bylaws (incorporated by reference to the Company's Report on
                Form 10-K for the year ended December 31, 1987).
[ADD ADOPTION OF BYLAWS AMENEDED AS OF 5/21/88]
           (4)  Instruments defining the rights of holders (incorporated by
                reference to Exhibit (3) herein).

 (10)
           (1)  Our Acquisition Agreement with Red River Trading Company, Inc.
                and Micromatix.com, Inc. and Addendum thereto.

           (2)  Our compensation plan agreement with Frederic Richardson.

           (3)  Our Lease Agreement.

           (4)  Our Note Payable to Sarah Saul Simon Trust.

           (5)  Our Note Payable to Red River Trading.

           (6)  Our Acquisition Agreement with LinuxOne, Inc., as amended.

 (11)      Earnings per share (See Appendix A)

 (21)      Our Subsidiaries

       (b)  Reports on Form 8-K.

       During the last quarter of the year ended December 31, 2000, no reports
       on Form 8-K were filed by registrant.

      (c)  Financial Data Schedule.



                           Appendix A
                     Financial Statements.

       The following Audited Financial Statements of Registrant are filed as
part of this Form 10-KSB Report:

     1.  Balance Sheet as of December 31, 2000.

     2.  Statement of Operations for the period January 1 through December 31,
2000.

     3.  Statement of Operations for the period September 2, 1999 (Date of
Inception) through December 31, 1999.

     4.  Statement of Changes in Stockholder's Equity for the period January 1,
2000 through December 31, 2000.

     5.  Statement of Changes in Stockholder's Equity for the period September
2, 1999 (Date of Inception) through December 31, 1999.

     6.  Statement of Cash Flows for the period January 1, 2000 through December
31, 2000.

     7.  Statement of Cash Flows for the period September 2, 1999 (Date of
Inception) through December 31, 1999.

     8.  Notes to Financial Statements


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized:

                      INTERNATIONAL MERCANTILE CORPORATION

By:/s/C. Timothy Jewell
      C. Timothy Jewell,
      Chief Exec. Officer
      President

Date: April 16, 2001

     In accordance with the Exchange Act, this  report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

By:/s/C. Timothy Jewell
      C. Timothy Jewell,
      Chief Exec. Officer
      President

By:/s/ Frederic S. Richardson
       Frederic S. Richardson,
       Director, Exec. Vice Pres.

By:/s/ Max W. Apple
       Max W. Apple,
       Director

Date: April 16, 2001






                                                                                                Page

               Auditors' Report                                                                    1

               Balance Sheets                                                                    2-3

               Statements of Operations                                                            4

               Statements of Changes in Stockholders' Equity                                       5

               Statements of Cash Flows                                                            6

               Notes to the Financial Statements                                                7-19




                          Caruso & Caruso, CPA's P.A.


To the Board of Directors and Stockholders
International Mercantile Corporation.,  a Missouri corporation

We have audited the accompanying balance sheets of International Mercantile
Corporation as of December 31, 1999 and 2000 and the related statements of
operations, changes in stockholders' equity, and cash flows for the period
September 2, 1999 (Date of Inception) through December 31, 1999 and for the year
ended December 31, 2000.  These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Mercantile
Corporation as of December 31, 1999 and 2000, and the results of its operations
and its cash flows for the period September 2, 1999(Date of Inception) through
December 31, 1999 and for the year ended December 31, 2000 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 12 to the
financial statements, the Company has incurred significant operating losses.
Although the Company is negotiating financing arrangements that will provide
additional working capital until revenues from full scale operations are
sufficient, the Company cannot predict what the outcome of the negotiations will
be.  These conditions raise substantial doubt about the Company's ability to
continue as a going concern.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Caruso & Caruso, CPA's P.A.
    Caruso & Caruso, CPA' s, P.A.

Boca Raton, Florida
April 10, 2001








                      INTERNATIONAL MERCANTILE CORPORATION
                                  BALANCE SHEET
                        AS OF DECEMBER 31, 1999 and 2000



                                     ASSETS

                                                                                         1999             2000
                                                                                ------------------------------------

            Current Assets
                         Cash and Cash Equivalents                               $      37,699    $      63,157
                         Marketable Securities - Trading                               715,075               -

                         Accounts Receivable Net of Allowance
                              for Doubtful Accounts                                    849,471        1,036,458
                         Inventory                                                     475,626          276,391
                         Prepaids & Other Assets                                        14,298           64,585
                         Due From Related Party                                             -            51,404

                                                                                ------------------------------------

                               Total Current Assets                                  2,092,169        1,491,995

            Investments
                         Investment in Equity Securities-Available-For-Sale          2,725,642           80,000

            Fixed Assets
                         Fixed Assets, net of Accumulated Depreciation                 200,008          225,967

            Other Assets
                         Organization Costs, Net of Amortization                       196,832          169,625
                         Deposits                                                       18,330           32,604
                         Capitalized Loan Costs, Net  of Amortization                       -           130,468

                                                                                ------------------------------------
                              Total Other Assets                                       215,162          332,697
                                                                                ------------------------------------

                              Total Assets                                       $ 5,232,981      $ 2,130,659
                                                                                ====================================




       See Auditors' Report and Accompanying Notes to Financial Statements

                                        2





                      INTERNATIONAL MERCANTILE CORPORATION
                                  BALANCE SHEET
                        AS OF DECEMBER 31, 1999 and 2000

                       LIABILITIES & STOCKHOLDERS' EQUITY

                                                                                         1999             2000
                                                                                ------------------------------------

            Current Liabilities
                         Accounts Payable and Accrued Expenses                   $    745,218     $ 1,097,194
                         Accrued Interest Payable                                       9,052         130,182
                         Due to Related Party                                         261,322              -

                         Warranty Reserve - Current Portion                             2,442          12,442
                         Note Payable - Related Parties,
                              Current Portion                                         596,609          455,209
                          Line  of Credit                                                  -
                                                                                                        588,908
                         Loans Payable                                                750,124          247,500
                         Capitalized Lease Payable - Current Portion                   10,221           13,915
                                                                                ------------------------------------
                               Total Current Liabilities                            2,374,988        2,545,350

            Long Term Liabilities
                         Committments and Contingencies
                         Warranty Reserve, Net of Current Portion                       4,884           5,171
                         Capitalized Lease Payable Net
                              of Current Portion                                       23,787          12,126
                         Note Payable - Related Party
                              Net of Current Portion                                  100,000          75,000
                          Convertible Debentures                                           -          500,000

                                                                                ------------------------------------
                               Total Long Term Liabilities                            128,671         592,297
                                                                                ------------------------------------

                               Total Liabilities                                    2,503,659       3,137,647
                                                                                ------------------------------------

            Stockholders' Equity
                         Common stock-Class A - $.10 Par,
                            31,000,000 shares authorized, 728,920 and
                               9,333,536 shares outstanding                            72,892         933,354
                         Common stock-Class B - $.01 Par,
                            2,000,000 shares authorized, 1,000,000 and
                            2,000,000 shares outstanding                               10,000          20,000
                         Preferred stock - Series 1 - $1.00 Par,
                            2,000,000 authorized, -0- and

                            -0- shares outstanding                                         -               -
                         Preferred stock - Series 2 - $1.00 Par,
                            2,000,000 authorized, -0- and

                               285,714 shares outstanding                                  -          285,714
                         Preferred stock - Series 3 - $1.00 Par,
                            5,000,000 authorized, -0- and

                            -0- shares outstanding                                         -               -
                         Additional Paid in Capital                                 2,945,874       3,364,530
                         Accumulated Deficit                                         (299,444)     (5,610,586)
                                                                                ------------------------------------

                               Total Stockholders' Equity                           2,729,322      (1,006,988)
                                                                                ------------------------------------

                               Total Liabilities & Stockholders' Equity          $  5,232,981     $ 2,130,659
                                                                                ====================================


       See Auditors' Report and Accompanying Notes to Financial Statements

                                        3


                      INTERNATIONAL MERCANTILE CORPORATION
                             STATEMENTS OF OPERATIONS
                  PERIOD SEPTEMBER 2, 1999 (DATE OF INCEPTION)
                   THROUGH DECEMBER 31, 1999 AND FOR THE YEAR
                             ENDED DECEMBER 31, 2000

                                                                               September 2,                For the Year
                                                                                1999 through                 Ended
                                                                                December 31,               December 31,
Revenues                                                                            1999                      2000
                                                                            ------------------        -----------------
               Sales                                                              $ 1,465,294              $ 7,064,025
               Cost of Merchandise Sold                                             1,262,396                6,463,249
                                                                            ------------------        -----------------

                  Gross Profit                                                        202,898                  600,776
Operating Expenses
               Amortization                                                            12,390                  109,796
               Auto and Truck Expense                                                       -                   37,258
               Bad Debts                                                               17,336                  410,870
               Bank Charges & Credit Card Fees                                          4,718                   36,720
               Donations                                                                    -                    2,359
               Depreciation                                                            10,480                   50,713
               Interest Expense                                                        11,436                  249,932
               Marketing, Advertising Expense & Sales Expense                         116,922                  432,765
               Office Supplies & Expense                                               32,021                  130,412
               Professional Fees                                                       18,476                  321,406
               Rent                                                                    42,823                  196,357
               Repairs & Maintenance                                                    5,168                   17,570
               Salaries & Related Costs & Benefits                                    188,706                1,067,394
               Subcontract Labor & Temporary Help                                       9,725                   18,568
               Telephone & Utilities                                                   21,548                  115,392
               Travel & Promotion                                                       3,267                  114,083
               Warranty Reserve                                                         7,326                   10,037
                                                                            ------------------        -----------------

                  Total Operating Expenses                                            502,342                3,321,632
                                                                            ------------------        -----------------

               Net (Loss) From Operations                                            (299,444)              (2,720,856)

Other Revenues and (Expenses)
               Loss on Securities                                                           -               (2,645,642)
               Finance Charge Income                                                        -                   55,356
                                                                            ------------------        -----------------

               Net (Loss) From Operations and Other Revenues                       $ (299,444)            $ (5,311,142)
                                                                            ==================        =================

               Earnings (Loss) per share of common
                    Stock - Basic                                                   $ (0.3592)               $ (1.4461)
                                                                            ==================        =================

               Weighted Average Shares - Basic                                        833,595                3,672,698
                                                                            ==================        =================

               Earnings (Loss) per share of Common
                    Stock - Diluted                                                 $ (0.2155)               $ (0.9392)
                                                                            ==================        =================

               Weighted Average Shares - Diluted                                    1,389,548                5,655,036
                                                                            ==================        =================

       See Auditors' Report and Accompanying Notes to Financial Statements


                                        4





                      INTERNATIONAL MERCANTILE CORPORATION
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
          FOR THE PERIOD SEPTEMBER 2, 1999 (DATE OF INCEPTION) THROUGH
           DECEMBER 31, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 2000

                                                                    COMMON      PREFERRED     ADDITIONAL
                                                                    STOCK         STOCK        PAID IN     ACCUMULATED
                                                      SHARES        AMOUNT        AMOUNT       CAPITAL       DEFICIT
                                                      -----------------------------------------------------------------------------
Balance September 2, 1999(Date of Inception)          $ 1,000       $ 10          $  -         $ 490          $  -

Reverse acquisition, September 6, 1999
 Exchange of Micromatix.com, Inc., a Delaware corp
    Common Stock                                       (1,000)       (10)            -          (490)            -
Authorization of Common Stock of International
Mercantile Corporation a Missouri corp to owners of
Micromatix.com, Inc., a Delaware corporation
    Class B Common Stock, issued & outstanding             -          -              -            -              -
Outstanding Common Stock of International Mercantile
Corporation, a Missouri corp, as adjusted for
August 8, 2000  1:7 reverse split
     Class A Common Stock                             728,920      72,892            -      2,945,874            -
     Class B Common Stock                           1,000,000      10,000            -            -              -
Net (Loss) incurred during the Development Stage           -           -             -            -      $ (299,444)
                                                     ------------------------------------------------------------------------------

Balance, December 31, 1999, as adjusted for
  August 8, 2000 1:7 reverse stock split            1,728,920    $ 82,892         $  -    $ 2,945,874    $ (299,444)
Issuance of Common Stock of International Mercantile
Corporation a Missouri corp to owners of
Micromatix.com, Inc., a Delaware corporation, as
   adjusted for August 8, 2000 1:7 reverse stock split
     Class A Common Stock                             214,286      21,429            -            -              -
     Class B Common Stock                           1,000,000      10,000            -            -              -
Issuance of Common Stock of International Mercantile
Corporation a Missouri corporation, as adjusted for
     August 8, 2000 1:7 reverse stock split
     Class A Common Stock                           8,390,330     839,033            -        418,656            -
     Class B Common Stock                                  -           -             -             -             -
     Series 2 Preferred Stock                         285,714          -        285,714            -             -

     Net (Loss)                                            -           -             -             -      (5,311,142)
                                                    -------------------------------------------------------------------------------

      Balance,  December 31, 2000                  11,619,250    $ 953,354    $ 285,714    $ 3,364,530  $ (5,610,586)
                                                    ===============================================================================

       See Auditors' Report and Accompanying Notes to Financial Statements

                                        5


                      INTERNATIONAL MERCANTILE CORPORATION
                             STATEMENTS OF CASH FLOWS
          FOR THE PERIOD SEPTEMBER 2, 1999 (DATE OF INCEPTION) THROUGH
           DECEMBER 31, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 2000


                                                                                 1999                 2000
                                                                     ------------------------------------------

                                                                               $ (299,444)        $ (5,311,142)


  Bad Debts                                                                        17,336              410,870
  Depreciation & Amortization                                                      22,870              160,509
  (Increase)Decrease in
     Marketable Securities - Trading                                             (715,075)             715,075
     Investment in Equity Securities Available-For-Sale                        (2,725,642)                   -
     Accounts Receivable                                                         (866,807)            (712,457)
     Inventory                                                                   (475,626)             199,235
     Prepaids & Other Assets                                                      (14,298)             (50,287)
     Deposits                                                                     (18,330)             (14,274)
     Organization Costs & Loan Costs                                             (209,222)             (70,199)
     Due From Related Party                                                             -              (51,404)
  Increase(Decrease)
     Accounts Payable & Accrued Expenses                                          745,218              473,106
     Due to Related Party                                                         261,322             (261,322)
     Accrued Interest                                                               9,052              121,130
     Warranty Reserve                                                               7,326               10,287
                                                                     ------------------------------------------
                                                                               (4,261,320)          (4,380,873)


Acquisition of Fixed Assets                                                      (210,488)             (87,127)
Permanent Impairment of Equity Securities Available-for-Sale                            -            2,645,642
                                                                     ------------------------------------------
                                                                                 (210,488)           2,558,515


Proceeds from Loans, Notes Payable, Capital Leases and
    and Line of Credit                                                          1,505,741            1,695,000
Payments on Loans, Notes Payable and Line of Credit                               (25,000)          (1,413,591)
Payments on Capital Lease                                                               -               (8,422)
Capital Contributions                                                           2,945,874              396,785
Issuance of Capital Stock                                                          82,892            1,178,044
                                                                     ------------------------------------------

                                                                                4,509,507            1,847,816
                                                                     ------------------------------------------

                                                                                   37,699               25,458

                                                                                        -               37,699
                                                                     ------------------------------------------

                                                                                 $ 37,699             $ 63,157
                                                                     ==========================================



      See Auditors' Report and Accompanying Notes to Financial Statements

                                        6







                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


1.  Organization and Summary of Significant Accounting Policies

ORGANIZATION

International Mercantile Corporation (The Company) is a profit corporation
organized under the laws of the State of Missouri on March 10, 1971 as
International Mercantile Corporation (IMTL).  On July 31, 1999, the Company
liquidated its' majority interest holdings in its' subsidiary, University
Mortgage, Inc., which represented the Company's operations, through a new
issuance of University Mortgage, Inc. stock to a related third party investor in
consideration of their capital investment in University Mortgage, Inc.  The
result of this action left an OTC Bulletin Board publicly traded company with no
substantial assets or liabilities.  On September 6, 1999, the Company merged
with Micromatix.com, Inc. (the predecessor company), a newly formed Delaware
corporation which maintained an Internet based personal computer manufacturing
business that sells build-to-order unbranded or "white box" PC systems and PC
related hardware throughout the United States to value added retailers and other
marketers of micro computer systems.  Shareholders of the predecessor company
received 2,500 shares of the Company's stock for each share of the predecessor
company; a total of 2,500,000 shares issued, in exchange for 100% of the
outstanding stock of the predecessor company.  The merger was accounted for as a
capital transaction with no recognition of goodwill or other intangible assets.
The Company, however, has not completed the requisite articles of merger and
related documents, which are required to be filed with the applicable state
authorities.  Immediately subsequent to the transaction, the owners of the
predecessor company assumed the management of the Company doing business as
Micromatix.net and owned approximately 26.92% of the outstanding stock of the
Company representing 48.32% of the voting rights.  Since this transaction was,
in substance, a recapitalization of Micromatix.com, Inc. (the predecessor
company) and not a business combination, pro forma information is not presented.
Accordingly, the historical data contained in the financial statements is that
of the predecessor company.  An unwind provision existed as part of the merger
agreement, whereby the merger agreement could be rendered void.  On September 2,
2000 this provision of the merger agreement expired.

REVENUE RECOGNITION

Revenues are derived primarily from sales of build-to-order personal computers
and related PC hardware via the Company's business-to-business e:commerce.
Revenues related to these sales are recognized when a computer product is
shipped and invoiced.

                                        7


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

INVENTORY

Inventory consists primarily of component parts.  The Company maintains a
perpetual inventory system and determines quantities by the average cost method.
Inventory is valued at the lower of actual cost or market, net of inventory
allowance.

ADVERTISING EXPENSE

The Company recognizes advertising expenses in accordance with Statement of
Position ("SOP") 93-7 "Reporting on Advertising Costs."  As such, the Company
expenses the costs of producing advertisements at the time production occurs,
and expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost.  Depreciation is computed using the
straight-line method based on the estimated useful lives of the assets, which
range from three to five years.  Costs for routine repairs and maintenance are
expensed as incurred and gains and losses on the disposal of assets are
recognized in the period such disposals occur.

SOFTWARE DEVELOPMENT COSTS

Internal and external costs incurred to develop internal-use software are
capitalized during the application development stage and are being amortized
over three years.

INTANGIBLE ASSETS

Costs incurred to organize the Company are capitalized and reported on the
balance sheet as other assets.  The costs are being amortized over a period of 5
years using the straight-line method.  Costs associated with the procurement of
loans and lines of credit are capitalized and reported on the balance sheet as
other assets.  The costs are amortized over the term of the related debt
instrument.


                                        8



                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



MARKETABLE SECURITIES AND INVESTMENT IN EQUITIES          AVAILABLE-FOR-SALE

The Company's marketable securities are comprised of equity and debt securities
and are classified as trading securities.  Trading securities are recorded at
fair value, with the change in fair value during the period included in net
earnings.  In the first quarter of the year 2000 the Company liquidated its
entire marketable trading securities portfolio.  The Company's Investment in
Equities Available-For-Sale is comprised of securities that management has not
demonstrated are being held for trading.  The investment is recorded at fair
market value on the balance sheet with any permanent decline in value recognized
in the statement of operations in accordance with SFAS 115.

WARRANTY RESERVE

The Company maintains a depot warranty on components sold and manufactured
systems for three years; the equivalent period of time that substantially all
components from supplier manufacturers are warranted.  As the Company has not
established a history of warranty service, a warranty reserve of one quarter of
1% of sales has been recorded at December 31, 1999 and 2000.

INCOME TAXES

The Company files its tax return with the Internal Revenue Service as a  C
Corporation.  Applying statutory tax rates to future year's differences between
the tax bases and financial reporting amounts of assets and liabilities
recognizes deferred income taxes.  No deferred tax asset/valuation allowance has
been recognized for the losses incurred to date, as it is not determinable that
the Company will realize any tax benefit from such losses.  Loss carryforwards,
if any, expire fifteen years following the tax year-end in which they occur.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the respective reporting
period.  Actual results could vary from these estimates and assumptions.



                                        9


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



CONCENTRATIONS OF RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and marketable
securities.  The Company maintains its cash and cash equivalents in bank deposit
accounts, the balances of which, at times, may exceed federally insured limits.
Additionally, the Company assumes that computer chip and memory availability
will remain constant.  This assumption subjects the Company to concentrations of
risk should the availability of these items become uncertain in the future

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.  The Company does not anticipate
the impact of this pronouncement will be material.  Further, the Company does
not believe that any recently issued, but not yet effective accounting standards
will have a material effect on the Company's financial position, results of
operations or cash flows.

In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements.  SAB No. 101 does not impact the
Company's revenue recognition.

EARNINGS PER SHARE

As per Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings Per Share, standards for computing and
presenting earnings per share (EPS) applies to publicly held common stock or
potential common stock.  It requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures.  Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period.  Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.  In computing EPS as a
result of the reverse acquisition, the number of shares outstanding for the
period from September 2, 1999 until the date of the reverse acquisition,
September 6, 1999, is the number of shares issued by the Company to the
shareholders of the predecessor company.  For the period September 6, 1999 to
December 31, 1999 the number of shares considered to be outstanding is computed
as actual number of shares of the Company outstanding during that period.  The
average number of shares outstanding for the full period being


                                       10


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



EARNINGS PER SHARE CONT'D

reported upon in 1999 has been computed by averaging these two amounts.  Other
appropriate adjustments have been made to deal with changes in numbers of shares
issued during the period.  Diluted EPS for the  period ended December 31, 1999
were computed as a result of the Company's complex capital structure; including
6.000,000 shares of Class A Common stock and 1,000,000 shares of Class B Common
stock which were authorized and unissued as of December 31, 1999.  These shares
were subsequently issued by April 12, 2000.  For the year ended December 31,
2000 the number of shares considered to be outstanding is computed as actual
number of shares of the Company outstanding during that period.  Other
appropriate adjustments have been made to deal with changes in numbers of shares
issued during the period. Diluted EPS for the year 2000 were computed as a
result of the Company's complex capital structure; including 285,714 shares of
Series 2 Preferred stock, 20,000 shares of Class B Common stock, and 178,571
equivalent converted shares represented by the $500,000 Convertible Debenture.

DEVELOPMENT STAGE

The Company's principal operations, comprised of sales of build-to-order
unbranded or "white box" PC systems and PC related hardware were in a start up
phase through December 31, 1999.  Although some sales, manufacturing and
distribution of personal computers and related PC hardware had commenced, as of
December 31, 1999 there had been no significant revenue generated therefrom.
Substantially all the efforts of the Company were focused on capitalization of
the Company, the establishment of its' website, internal infrastructure,
production lines and development of a marketing team.  Accordingly, financial
statements of the Company as of December 31, 1999 and for the period September
2, 1999 (Date of Inception) through December 31, 1999 reflect the Company as in
the Development Stage.  Subsequently, thereto, the Company entered into normal
operations.

2.        Allowance for Doubtful Accounts

In accordance with Generally Accepted Accounting Principles the Company records
anticipated uncollectible amounts by creating an allowance account.  Bad Debt
Expense is recognized using the Percentage of Sales method.  For the year ended
December 31, 1999 and 2000 the Company recognized a bad debt expense of $17,336
and $410,870 respectively.  In the periods ended December 31, 1999 and 2000 no
actual receivables were directly written off.  As a result, the allowance
account included on the balance sheet, as net of account receivables is $17,336
and $542,806 at December 31, 1999 and 2000.


                                       11


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



3.  Related Party Transactions

The Company's financing since inception, throughout its development stage and
during the year ended December 31, 2000 has been provided by interest bearing
loans, non-interest bearing loans and capital contributions to the Company by
its shareholders.  At December 31, 2000 the Company had liabilities to a major
shareholder of $100,000 in the form of an unsecured note payable bearing
interest at 8% per annum.  The note calls for six annual principal installments
of $25,000 plus accrued interest.  In January, 2000 the Company paid the second
annual principal installment of $25,000.  The note was issued for the purchase
of machinery, office equipment and furniture from the shareholder.  Accrued
interest through December 31, 2000 is $8,000.

A B securities, a shareholder of IMTL, acquired authorized, but unissued, shares
of University Mortgage, Inc. (UMI) diluting the voting and equity interest of
IMTL in UMI to less than 5%.  The shares of UMI remaining after the dilution
were then exchanged in a stock for stock transaction for registered shares of
Virtual Lender.com, Inc. (VLDC), a publicly traded company.  The investment was
originally recorded at cost.  On December 31, 1999 IMTL acquired 3,000,000
authorized but unissued shares of VLDC's restricted common stock in exchange for
3,000,000 shares of IMTL restricted Class A common stock. In April 2000, the
Company received an additional 1,000,000 shares of VLDC's restricted common
stock in exchange for the balance of IMTL's equity interest in UMI.  The
investment is defined as an investment in securities - available for sale, in
accordance with Statement of Financial Accounting Standards (SFAS 115) and is
reported on the balance sheet at its fair market value.  During the year ended
December 31, 2000 the fair market value declined significantly. Since no
conditions presently exist that would demonstrate that the decline in value of
this investment is other than temporary, the loss is recognized in the statement
of operations.

    At December 31, 2000 the Company had outstanding a note payable to a major
stockholder due in one lump sum payment of principal and interest on or before
November 23, 2000.  The note, the principal balance of which is $571,609 and
$430,209 at December 31, 1999 and 2000 respectively, bears interest at a rate of
8% per annum, and is unsecured.  As of December 31, 2000 interest has accrued in
the amount of $19,791 on the liability.  The note is in default as of December
31, 2000. In addition, as a result of a separate transaction the Company has a
receivable from the same related party in the amount of $51,404.

4.    Commitments

The Company leases its corporate offices and manufacturing facilities in
Baltimore, Maryland under a six-year lease agreement, which began on October 1,
1999.  The lease encompasses commercial facilities of approximately 40,000
square feet.  Rent for the first year was $14,274 per month plus applicable
sales tax, utilities, maintenance and property tax reimbursement and will
increase approximately 5% in each of the succeeding five

                                       12


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



Commitments cont'd

years.  An additional security deposit of $14,274, as required under the lease
agreement, was paid to the landlord on February 21, 2000. During the year ended
December 31, 2000, the Company paid $174,205 in lease payments.

Future minimum requirements of the Baltimore, Maryland corporate offices and
manufacturing facilities are:

                          FYE  12/31/01              $182,371
                          FYE  12/31/02               187,040
                          FYE  12/31/03               189,957
                          FYE  12/31/04               195,790

                          FYE  12/31/05               130,257
                                                     $931,154
                                                      =======


The Company issued 285,714 shares of Preferred, Series 2, $.10 Par stock to a
shareholder for the purpose of securing financing in the amount of $1,000,000.
The stock is being held in escrow pending the consummation of the financing
contract, which as of the date of these financial statements has not occurred,
nor, according to management is likely to occur.

Included in the Company's Trade Accounts Payable is a $140,000 payable to a
vendor, which the Company has secured with 150,000 restricted shares of Class A
common Stock.


In June 2000, the Company issued a private offering of convertible debt
debentures for the purposes of securing capital in the amount of $3,000,000. The
investment was funded by an initial payment of $500,000 at closing and is to be
followed by monthly installments of $250,000 each for ten months beginning the
 month after an effective registration statement is filed with the Securities
and Exchange Commission (SEC).  On August 16, 2000 the Company filed a SB-2
registration statement with the SEC pursuant to this contract.  The SEC declined
to review the SB-2 statement and notified the Company as such on September 19,
2000.  As a result no funding has been received as of the date of these
financial statements as the Company is required to make substantive




                                       13



                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Commitments cont'd

amendments to the registration statement before the SEC will continue a review
of the prospectus.  To date these substantive amendments have not been made.
The Company has the right to prepay the Note at 130% of the principal balance at
the time of prepayment upon 10 days written notice.  Interest accrues on the
debenture at 8%  per annum payable in restricted Class A common stock.  As of
December 31, 2000, the Company has accrued interest in the amount of $22,889.
The equity instrument is convertible, at any time, into Common Stock at a price
equivalent to the lower of 70% of the lowest closing bid price as reported on
the OTC Bulletin Board for the three days preceding receipt by the Company of a
notice of conversion or $.40.  Of the initial $500,000 funding, $150,000 was
distributed in payment of legal, consulting and brokerage fees incurred to
facilitate the contract.  The balance of $350,000 was used to reduce related
party debt.


5.       Capital Lease Obligations

The Company leases its operational and accounting software under a capital
lease, which expires in December, 2002.  The lease requires monthly payments of
principal and interest of $1,235 plus applicable sales tax.  Interest is imputed
at 13.25% per annum.  The lease agreement concludes with a $1 buy option at the
end of the lease term.  During the year ended December 31, 2000 the Company paid
$13,353 in lease payments.  Approximate future lease payments under the capital
lease is as follows:

                             FYE 12/31/01             $16,931
                             FYE 12/31/02              12,944
                                                      $29,875
 Less Amount representing interest                      3,834
                                                       26,041
 Less current maturities                               13,915
 Long-term debt, less current maturities              $12,126
                                                       ======

6.  Officers' Compensation

Prior to the reverse acquisition, the Company's day-to-day activities were
managed by certain  officer/shareholders, who contributed their time on the
Company's behalf without compensation in either cash or stock.  No value for
these services has been determined or recorded on the accompanying financial
statements.  Subsequent to the merger one of these officer/shareholders is
compensated as a consultant through a wholly owned corporation of the officer/
shareholder and another officer is being compensated through the Company's
payroll.

                                       14

                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



7.  Fixed Assets
Fixed assets for the Company consisted of the following at December 31, 1999:

                                                                   Accumulated
                                                 Fixed Asset      Depreciation      Balance
Website Development                               $   3,017       $   176           $   2,841
 Furniture & Fixtures                                32,000         1,333              30,667
Manufacturing/Warehouse Equip                        33,000         1,375              31,625
Computer Hardware                                    61,163         3,231              57,932
Transportation Equip                                  7,000           408               6,592
Office Equipment                                     30,959         1,806              29,153
Software Systems                                     39,349         2,151              37,198
Leasehold Improvements                                4,000            -                4,000
                                                   $210,488       $10,480           $ 200,008
                                                     ===========================================


Fixed assets for the Company consisted of the following at December 31, 2000:
                                                                   Accumulated
                                                 Fixed Asset      Depreciation      Balance
Website Development                              $    9,641       $   1,712         $   7,929
 Furniture & Fixtures                                33,142           6,064            27,078
Manufacturing/Warehouse Equip                        38,026           6,724            31,302
Computer Hardware                                    90,511          18,554            71,957
Transportation Equip                                  7,000           1,808             5,192
Office Equipment                                     36,909           8,972            27,937
Software Systems                                     67,931          13,359            54,572
Leasehold Improvements                                4,000           4,000                -
                                                   $287,160        $ 61,193        $  225,967
                                                   ========================================

8.  Employee Stock Option Plan

The Company/s Board of Directors has authorized officers of the Company to offer
certain employees benefits under an unqualified Employee Stock Option Plan,
which, as of the date of these financial statements, has not been consummated.
The terms of such options are contracted between each eligible employee and the
Company on a case-by-case basis.  As of the date of these financial statements,
7 such plans are either active, pending the start of employment or under
negotiation; none are vested.



                                       15


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



9.  Notes Payable and Convertible Debentures

Notes Payable consist of the following at December 31, 1999:

         Note Payable - related party dated September 6, 1999                             $125,000
         Note Payable - related party dated November 23, 1999                              571,609
                                                                                           696,609
                           Less Current Portion                                            596,609
                           Long Term Portion                                              $100,000

Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of the Company's long term
debt approximates the carrying amount.  Interest expense on the above note and
the related third party note described in foot note 3 amounted to $5,277 and
$3,775 respectively for the period ended December 31,1999.

Notes Payable consist of the following at December 31, 2000:

         Note Payable - related party dated September 6, 1999                             $100,000
         Note Payable - related party dated November 23, 1999                              430,209
                                                                                           530,209
                           Less Current Portion                                            455,209
                           Long Term Portion                                             $  75,000

Loans Payable consist of the following at December 31, 2000:

            Loan Payable - Dated November, 1999                                          $   7,500
            Loan Payable - Dated March, 2000                                                50,000
            Loan Payable - Dated April, 2000                                               150,000
            Loan Payable - Dated May, 2000                                                  40,000
                                                                                           247,500
                           Less Current Portion                                           (247,500)
                           Long Term Portion                                            $       -    _

Convertible Debentures at December 31, 2000 are as follows:

              Convertible Debentures dated June 4, 2000                                   $500,000
                                 Less Current Portion                                            0
                                    Long Term Portion                                     $500,000

Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of the Company's long term
debt approximates the carrying amount.  Interest expense on the above notes and
convertible debentures for the year ended December 31, 2000 amounted to $73,395.


                                       16

                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



10.  Line of Credit

On March 22, 2000 the Company entered into a factoring agreement with an
unrelated third party to fund the purchase of inventory to fulfill purchase
orders under an agreement to manufacture approximately 2,000 white-box computer
units per month for a national satellite distributed program network marketing
group.  The factoring arrangement is in the form of a one year revolving line of
credit, which allows for the drawing of funds by the Company in an amount equal
to 75% of the purchase orders received from the marketing group.  The line of
credit is capped at $750,000 representing up to $1,000,000 of purchase orders.
The financing calls for the payment of 3 points per month on open invoices and
is secured by an assignment of the underlying receivable, acquired inventory
related to the contract, and 214,286 restricted shares of the Company's Class A
common stock.  The Company issued 650,000 restricted shares to the lender as a
fee for securing the financing.  For the year ended December 31, 2000 the
Company paid $93,032 in financing costs and accrued an additional $79,502 of
interest payable related to the line of credit.  As of the date of these
financial statements, the line of credit is in default as payments of principal
and interest are past due.  Consequently, the lender has disallowed further
advances on the credit line.  Management and the lender are working jointly with
counsel to collect the underlying receivable.  As of the date of these financial
statements legal action has been filed in this regard by the Company to collect
the underlying receivable.  The balance of the receivable as of December 31,
2000, including additional financing charges is $628,745.  The Company has
reserved an allowance of approximately $378,745, against this receivable.

11.  Contingencies

The Company's sales during the year ended December 31, 2000 include one
significant customer that represents approximately 14% of the total sales.  As
of the date of these financial statements the Company is no longer providing
products or services to this customer as the customer is over 300 days past due
on outstanding invoices.

In July 1999 Bowne & Co, Inc., a financial corporate printer filed suit against
the Company in New York seeking approximately $18,000 for claims of outstanding
printed invoices.  As of December 31, 2000 the suit is still pending and the
outcome is not yet determinable.

In August 2000 Interim Atlantic Enterprises, LLC filed suit against IMTL for
$11,038 This suit concerns a claim that an employee did not work the minimum
number of days required under the terms of a contract between IMTL and Interim
Atlantic Enterprises, LLC.  As of December 31, 2000 the suit is still pending
and the outcome is not yet determinable.


                                       17


                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

Contingencies cont'd

On March 28, 2000, Microsoft Corporation filed a complaint against the Company
and an employee for alleged copyright and trademark infringement and related
causes of action.  On November 7, 2000 the Company filed an answer denying all
of Microsoft's claims.  As of the date of these financial statements the suit is
still pending and the outcome is not yet determinable.

12.  Going Concern

The Company's financing has been provided by related party loans, capital
contributions from shareholders and third party loans.  The Company anticipates
that through the rest of the year ended December 31, 2001 and following years,
sales will continue to increase as a result of its operations and capital will
be increased by continued sales of the Company's Common Stock.  If either or
both of these sources fail to meet the Company's capital requirements, the
Company's ability to continue as a going concern would be in doubt.  The
financial statements do not include any adjustments regarding the going concern
and have been prepared with the assumption that the Company will continue
perpetually.

13.  Segment Information

The Company operates primarily in two industry segments:  (1) whitebox system
sales and (2) computer component sales.  The accounting policies of the segments
and the products and services provided by the operating segments are described
in Note 1.  The table below presents information about reported segments at
December 31, 1999:

                                          System           Component
                                          Sales              Sales           Other            Total

Sales                                   $547,955           $917,339                 $-        $1,465,294
Gross Profit                              74,464            128,434                  -           202,898
Operating Income (Loss)                   18,160             47,272           (364,876)         (299,444)
Assets                                   510,410            844,207          3,878,364         5,232,981
Capital Expenditures                      14,956             25,044            170,788           210,488
Depreciation Expense                         667              1,116              8,697            10,480




                                       18



                      INTERNATIONAL MERCANTILE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS



Segment Information cont'd

The table below presents information about reported segments at December 31,
2000:

                                         System           Component
                                         Sales              Sales               Other            Total

Sales                                 $4,395,261         $2,607,430            $61,334        $7,064,025
Gross Profit                             338,582            200,860             61,334           600,776
Operating Income (Loss)                   72,367             42,932         (2,836,155)       (2,720,856)
Assets                                 1,078,284            639,678            412,697         2,130,659
Capital Expenditures                       3,155              1,871             82,101            87,127
Depreciation Expense                       4,236              2,513             43,964            50,713


14.  Reverse Stock Split

On August 8, 2000 the Company, through a Board action, authorized a 1:7 reverse
split of the Company's outstanding Class A Common Stock, and outstanding Series
1, Series 2 and Series 3 Preferred Stock.  The Board approved the rounding up of
every fractional shareholder to a full share, with all shareholders equally
affected.  Coinciding with the reverse split, the Company increased the par
value of its Class A Common Stock from $.01 to $.10 per share, and increased the
par value of its Preferred Stock from $.10 to $1.00 per share.  The purpose of
the reverse split was to facilitate raising additional capital for the Company
and allow management to find possible merger and acquisition candidates.

Subsequent Events

On November 11, 2000 the Company signed a contract to acquire a privately held
developer (proposed acquired company) of embedded Linux thin client systems as a
wholly owned subsidiary of the Company.  The agreement is subject to due
diligence, including independent valuation of the proposed acquired company,
which if satisfactory to the Company's management, will result in the
consummation of the merger.  The terms of the merger call for each issued common
share, $.001 par value, of the proposed acquired company as of the closing shall
be converted into and exchanged for .85 shares of fully paid and non assessable
IMTL Class A common stock.  On April 5, 2001 the original contract dated
November 11, 2000 was amended to change the transaction from a merger agreement
to an asset acquisition agreement by the Company of selected assets of the
proposed acquired company.

On March 16, 2001, the Company, at the direction of the courts, entered into
mediation with management of a customer that, the Company has ascertained, owes
the Company $628,745.  The mediation was unsuccessful and a hearing date is
expected to be set by the courts in the near future.

                                       19`